Token Money

Token money is a form of money which represents a greater value than its intrinsic value.

Originally medium of exchange involved metals with an intrinsic value – such as gold coins. However, it became inconvenient to carry around sufficient gold. Therefore banks began issuing token money – notes and coins which they promised could be converted into gold.

If people have faith in the notes and coins, others will accept them as a form of payment.

Token money is related to the concept of fiat money – money which derives its value from government regulation or law.

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